Substantial Amount of Money to Salvation Army - Case Study Example

Substantial amount of money to Salvation Army

Contents

1.0 Introduction3

2.0 Background of Salvation Army4

3.0 Financial Analysis of Salvation Army5

4.0Internal Control Environment9

5.0 Other Factors11

6.0Areas of Concerns13

7.0 Conclusion15

• 1.0 Introduction

The charity entities help alleviate the economic plight of the residents. The report delves on the issue of charity entities- Salvation Army. The report focuses on the possibility of profitably investing in one market segment. Charity investment decisions should include considering the possible risks of not able to receive their money’s worth on time.

Further, the report is for charity investor Joe Blogs. Mr. Blogs will use the report as basis for investing the Salvation Army charity entity. Mr. Blog plans to invest his excess funds on a charity entity. The report will convince Mr. Blogs to invest in the Salvation Army entity. The financial (statement) analysis, control environment, audit report, and other factors will convince Mr. Blogs that the Salvation Army entity is engaged in charity activities, convincing Mr. Blogs to place his charity investments into the coffers of the Salvation Army entity.

• 2.0 Background of Salvation Army

History of Salvation Army.

The two founders of the Salvation Army charity entity are William Booth and Catherine Booth. The Salvation Army establishment of the same army took place during 1865. The date of establishment affirms the entity continues to survive after more than 100 years of charity existence. The same army focuses on helping individuals living in the community to become contributors to the betterment of society within over 120 countries. The religious affiliation of the same army is Methodist in character. William Booth was one of the well known Methodist pulpit preachers (Carmichael, 2012).

Main purpose of Salvation Army.

The aim of the two founders includes saving the members of society’s destitute, hungry, and poor. The focus of the two founders, as exemplified by their accepted Salvation Army members, is to fill up both the spiritual needs and physical needs of the residents of their assigned cities, counties, or communities in over 120 countries (Chapman, 2011).

The same charity entity has branches in more than 120 nations. To fill the financial needs of the same poverty line target communities, the members of the entity strive to generate funds (Chapman, 2011).

Further, the Salvation Army is a popular well known and respected Christian charity organization (Salvation, 2015). Specifically, the entity is a Christian entity. The same army pays for the personal needs of the same group of poor recipients. Personal needs include soap, toothbrush, tissue, and possibly shampoo products.

Charity Projects of Salvation Army

The entity continues to set up several money –generating centres in many countries. One of the money-generating activities is selling products in charity store branches. The most of the proceeds of the charity stores are given to the poor people. The company also manages many shelters around the world. As the name suggests, the shelters allow people who cannot afford to pay for a roof over their head the benefit of temporarily living in the shelters (Chapman, 2011).

• 3.0 Financial Analysis of Salvation Army

The Salvation Army generates donations from donors and benefactors. As of March (2014), the same army collected cash inflows. The cash inflows are classified as either restricted funds or unrestricted funds. The restricted funds amounted to an estimated £ 30 million figure. The unrestricted funds amounted to more than £ 5 million. The public donations received reached £ more than 43 million. The same army’s gross income favorably reached more than £ 29 million gross income amount. The figure is favourably £ 1.1 million higher than the prior year’s gross income output. The sources of income are the door to door fundraising drives. Consequently, the branch office members busily engage in door to door, street collection, and other fundraising activities. Other sources of the army’s cash inflows include donations from marathons, treks, runs, and other activities. The total incoming sources as of March 2014 surpassed the £ 196 million amount. The amount is favourably higher than the prior 2013 year’s £ 181.5 million. The sources favourably include cash inflows from donations, legacies and other sources. The legacies figure had favourably surpassed the 47.9 million benchmark during 2014. The figure is a 24 percent increase over the amount generated in the prior 2013 year, £ 38.7 million. Voluntary donations reached an estimated 60 percent of all total donations.

Further, the sources are sustainable for future activities of the same army. The army continued to exist for more than 100 years. The mere existence affirms that the company’s cash inflows are enough to sustain the existence of the army for more than 100 years. During 2014, the total cash inflows (revenues) amounted to £196 million. The amount is favourably higher than the 2013 total cash inflow (income) figure, £182 million. Specifically, the 2014 cash inflows came from £48 million legacies, £43 million donations from the general public, £ 21 million donation from members, and £3 million worth of total grants. Other cash inflow sources included £67 million trading income and. The total cash inflow amount can sustain the £57 million costs needed to generate the above cash inflows for the same year. The army pays for many charity activities. The charitable activities include £41 million church- related activities, £ 42 million community –based activities, £6 million international activities, £ 4 million training activities, £ 2 million youth activities, and £ 14 million social work trust activities. The net income after deducting the expenses (cash outflows) from the income (cash inflows) is £29.3 million, affirming the financial sustainability of the army’s charity activities. Clearly, the cash inflows (money) are used to financially help the people within the community have a better life. Consequently, Joe Blogs should invest in the Salvation Army charity activities.

The financial report of the United Kingdom Salvation Army shows favourable outcomes (Kieso, 2011). The army’s United Kingdom branch has two beneficially working charities. One of the popular charities is called the Salvation Army (Trust) Funds. The second similarly popular is called the Social Work. The same trust fund produced by both charities seemingly favourable £287 million fund transfers during the 2013 year alone. During 2014, the same army generated an estimated £274 million fund transfers. The entity produced an estimated £ 29 percent total income. The same income came from several sources. One of the sources is the care for homes that delivered services to the elderly population (Kieso, 2011).

Income favorably came from the life house collections. Another source of the entity’s income came from serving the needs of patients within the family centers and the children’s centres. Other income came from the rehabilitation of dangerous drugs dependents. Other incomes came from the outreach activities. Another income source came from the defence services facilities. Another huge income source was the income generated from the turnover of the Salvation Army Association activities. The association is subsidiary entity of the Salvation Army (Kieso, 2011).

During 2014, the investment income for the same Salvation Army dropped from £ 7.5 million to the unfavourably lower £ 7.2 million figure in 2013. The figure came from corps stores as well as operating the entity’s Salvation Army Company Ltd. The same figure came from the collections generated through the Salvation Army Corporation. The entity received an estimated £ 12 million from gains on the disposition of some of the entities’ properties. The audit report of the entity’s external auditors, Knox Cropper, affirmed the financial report figures reported by the Salvation Army entity are correct (Kieso, 2011).

Further, the table 1 (Appendix) shows the reserves picture of the Salvation Army during 2014 (Salvation, 2015). The endowments funds reached a £ 23.3 million. The same entity’s restricted funds are significantly high. For example, the property restricted fund reached an estimated £ 348 million. The same restricted funds total figure includes the other restricted funds, amounting to an estimated £ 257 million. The company’s overall restricted funds include four different amounts. One of the amounts is the designated funds figure, £ 70.3 million. Another amount is the unrealized investment gains figure, $ 52.4 million. Another amount is the Funds retained (trading) subsidiaries amounted to £ 17.9 million. Lastly, the General Reserve fund reached a favourable £55.1 million (Salvation, 2015).

Further, the table no. 1 above discussion affirms that the biggest fund is the property fund, £ 347.6 million. The same biggest fund amount is classified as the other restricted funds, £ 26.7 million. As expected, the smallest fund is the fund allocated for the training of more persons, £ 17.9 million. Likewise, the second smallest fund is the £ Endowment fund, £ 23.3 million.

• Internal Control Environment

The internal control environment of Salvation Army indicates the strong internal audit procedures prevent the occurrence of any significant or material errors or fraudulent activities within the Salvation Army entity. There were no money-related scandals that tarnished good name of the same army. The external auditor’s report does not indicate that the internal control environment of the entity does not comply (violated) prescribed internal control requirements required for all companies located within our United Kingdom environment (Arwinge, 2012). The auditor Knox Cropper did not show any report that the control environment implemented within the entity contributes to errors or fraudulent amounts reported within the same entity’s financial reports for 2013 or 2014 (Cascarino, 2012). Consequently, it is correct to presume that the internal control environment prohibited the occurrence of significant fraudulent or erroneous amounts appearing in the financial reports. The internal control environment requires the implementation of daily procedures that will prevent or bring out any errors or irregularities in the financial report items. For example, the entity complies with the audit internal control requirement to give an official receipt to donors or benefactors who contribute or sent money to the Salvation Army’s coffers.

The same external auditor did not report any case of out of balance accounts that would lead to the overstatement of the entity’s revenues and net profits (King, 2011). The same external auditor did not mention that the book value amounts of the company’s assets are erroneous or fraudulent (Ehrhardt, 2011).

Further, the external auditor did not report any incident of unreported expenses (Pfiser, 2011). The unreported expenses would lead to the fraudulent overstatement of the company’s actual net profit amounts. The external auditor did not report that there were thefts of cash and other assets of the company during 2014 accounting period (Griffiths, 2012). The external auditor did not report that the total asset figures shown in the entity’s financial report are understated, overstated, or fraudulent.

Therefore, the company complies with its corporate (social) responsibilities (Gertz, 2013) 126. Corporate social responsibility equates to ensuring the company places the interests of the members of the community or society in all its marketing strategies, delivery of services strategies, and other transactions. The same external auditor, Knox Cropper, did not state that the entity violated the labor laws or environmental protection laws. The corporate social responsibilities include donating funds or delivery free services to help alleviate the poor financial conditions of the residents (Leung et al., 2012).

• Other Factors

The table 2 (Appendix) shows the expenses incurred by the Salvation Army, United Kingdom, during 2013 and 2014 (IFRSBoard, 2014). During 2013, the total expenses incurred during 2013 reached £ 270 million. The amount favourably decreased to the £ 261.4 million during the next accounting year, 2014. Of the total amount, the total charitable contributions for 2013 reached £ 2011.9 million. The amount favourably rose to the much lesser $ 202.8 million (Glencoe, 2011).

During 2013, the expenses incurred for social and defense services reach £ 103.5 million. The amount unfavourably rose to £ 107.7 million during the next accounting year, 2014(Salvation, 2015). During 2013, the expenses paid for the costs trading reached £ 47 million. The amount unfavourably increased further to the £ 48.1 million during the next 2014 accounting period. During the same 2013 marketing year, the expenses allocated to voluntary (income) reached £ 10 million. The amount favourably dropped to the lower £ 9.6 million during the next accounting year, 2014. During 2013, the expenses paid for church as well evangelism activities reached £ 47.7 million during 2013. The figure favourably declined to the lower £ 40.8 million during the 2014 accounting period. During the same 2013 year, the expenses incurred for Corps community (programmes) reached a similar high amount, £ 47.6 million. The amount favourably decreased to the more affordable 42.2 million during the next 2014 accounting period (Bamber, 2014).

During 2013, the expenses incurred for social and defense services reach £ 103.5 million. The amount unfavourably rose to £ 107.7 million during the next accounting year, 2014. The above table affirms that the biggest expense amount is the £107.7 million amount. Next, the biggest expense amount is the £ 42.2 million figure allocated to the community –based activities.

Noncurrent Assets

The graph no. 1 (Appendix) shows the status of the noncurrent assets of Salvation Army during the past five years. The graph shows that there is an increasing amount of noncurrent assets being held by the Salvation Army. For 2010, the total noncurrent assets figure reached £ 77 million. The amount favourably climbed to the higher £ 89 million amount during 2011. The figure favourably climbed to bigger £93 million during 2012. The figure favourably rose to the higher £114 million during 2013. Finally, the figure favourably reached the higher £126 million figure during 2014. Clearly, the donations triggered the annual increase in the noncurrent assets.

Charity Programmes

Graph 2 shows the allocation the Salvation Army’s scarce charity money activities. First, the church–relate activities reached $41 million amount. The amount pays for spreading the good news of the saving power of Jesus Christ. The community-related activities reached £ 6 million. The training related activities took £4 million. The youth development training related activities took £ 2 million. Finally, the amount set for the payment of the Salvation Army’s Social (Work) Trust, $ 14 million. Based on the graph no. 2, the biggest amount is allocated to the Community church-related activities, £ 42 million. The budget charity figure indicates the church leaders prioritize helping the poor members of the community cope with the financial constraints of daily life. The second biggest charity figure is the Church-related activities, £ 41 million. The propagation of the Christian faith seems to be the second top priority of the church leaders. The third largest charity figure is the Social Work (Trust), £ 14 million. The same graph affirms that three charity events are not the priority budget area of the same Army’s officers. Based on allocated budget amounts, the non-priority areas include international programmes, youth programmes, and training activities.

• Areas of Concerns

Based on the external auditor’s report, there are no areas of concern that will generate a huge financial setback for the investment proposal (Jajodia et al., 2013).Areas of concern normally include the possibility of risks occurring within the annual charitable operations of the Salvation Army’s daily activities. The external auditors did not report any areas of concern, such as absorbing charity money for personal or private use of the army officers or cheating the public by shifting the collected money for non-charity related activities. Consequently, it is allowable to encourage the investors, especially Joe Blogs, to put their investments in the hands of the managers or high ranking officers of the Salvation Army.

However, slight risks may crop up. The risks include the possible use of the charity collections for the personal or private use of the officers of Salvation Army (Dawson, 2015). To reduce the occurrence of such risks, internal control measures should be in place to prevent such risks (use of charity money for private or person use of the officers) from cropping up.

Lastly, there will always be a risk that the people with the Salvation Army organization may fool the people or take advantage of the conditions of the people). For example, the person receiving the money from the donors or benefactors will pocket the donations (Doig, 2013). Another risk is that the charity organization does not implement charity activities. Instead of giving the money donated by the rich donors, philanthropists, and benefactors, the employees or officers of the Salvation Army entity will simply pocket (spend for personal needs) the received money. To reduce to occurrence of such risks, the officers of the army implemented internal control procedures to reduce the cropping up of the risks. The procedures include implementing the Risk Management (board) Committee. The committee ensures reduction or elimination of possible errors and fraudulent amounts entering the financial reports. The board issues a risk report on a yearly basis. The report indicates the possible risks that may occur within the one year accounting period. Similarly, the same board will recommend ways to reduce or eliminate the occurrence of the risks.

• 7.0 Conclusion

Summarizing, the typical job of most charity organizations help alleviate the economic plight of the poor and downtrodden people of the community where the Salvation Army branch is strategically located. Evidently the Salvation Army charity investment decisions must incorporate (take into account) the possible risks of not being able to receive their money’s investment returns on time to ensure the investment funds are used to help improve the lives of the poor, downtrodden, and destitute members of the community.